The Journal. - How Apple Lost to the EU

Episode Date: September 13, 2023

Yesterday, Apple announced a new iPhone 15 with a USB-C charger, the same cable its competitors use. As WSJ’s Kim Mackrael and Sam Schechner explain, at least some credit for the change can go to the European Union bureaucrats who have been increasingly battling Big Tech.  Further Reading: - America’s Tech Giants Rush to Comply With New Curbs in Europe  - He Took On the World’s Most Valuable Company—and Won  Further Listening: - FTC Chair Lina Khan on Microsoft Merger, ChatGPT and Her Court Losses  Learn more about your ad choices. Visit megaphone.fm/adchoices

Yesterday, in Cupertino, California... Good morning. Welcome to Apple Park. Apple CEO Tim Cook revealed the new iPhone 15. It comes with a bunch of shiny new features. 5X telephoto camera. The fastest chip ever in a smartphone. A customizable action button. In titanium for a durable, light, and stunning finish.

But our colleague, Kim McRaehl, was watching for one thing in particular. I was very interested to see what Apple would be doing when it came to the little hole on the bottom of the phone, which is where you plug in your cord to charge the phone. How is this new phone going to be different in terms of that port? What's different this time is that the phone that's coming out will actually have, for the first time for an iPhone, a USB-C port. The U in USB-C stands for universal, which means Apple's newest phone will finally work with the same charging cables its rivals use.

But this tweak didn't exactly come from Apple's designers. Probably at least some of the credit goes to some bureaucrats in Europe. And those bureaucrats have been busy. New laws from the EU are about to cause a tsunami of changes for big tech. And Apple's new iPhone port is a sign of things to come. This redesign is actually almost a perfect example of the way that rules that are set in the EU and Brussels ripple out to

the rest of the world. And I would say this is just the beginning of big global changes for tech. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, September 13th. It's Wednesday, September 13th. Coming up on the show, from cords to content moderation, Europe's regulators are taking on big tech and winning. With Uber Reserve, you can book your Uber ride in advance. 90 days in advance.

Perfect for all you forward thinkers and planning gurus. Reserve your Uber ride up to 90 days in advance. Uber Reserve. See Uber app for details. Last year, at the Wall Street Journal's Tech Live event, columnist Joanna Stern spoke with two Apple execs on stage about a charged topic. I've called you both here to talk about really a big problem. It's really a global crisis at this point, and I'm going to bring it up here. She pointed to a poster board showing two cables. We're going to start with you, Jaws. What do you see when you look at this?

I see two really cool connectors. Yeah, kind of the two most popular connectors in the world, I think, right now. Okay. One was Apple's proprietary lightning cable, and the other, the USB-C cable that every other smartphone uses. Craig, I know you're a software guy, but what do you see? I got to really agree with Jaws on this one. These are two great connectors. Two great connectors. Okay.

I see a little bit of a mess. This mess has to do with Apple's habit of making hardware that's only compatible with its own stuff. Here's our colleague Kim again. For quite a while now, iPhones have used a port that accepts the lightning charger. It's got sort of rounded edges on the metal end that goes into the port. You know, functionally, you couldn't use a USB-C in iPhones.

These days, pretty much every other device, from your Kindle to your Nintendo Switch controller to your Bose headphones, uses a USB-C port. Apple said it stuck with its own chargers because they work better and were more in line with the company's aesthetic. There's another thing, though. Lightning cords are also lucrative for Apple.

Some media estimates have said the company makes as much as $5 billion a year just from selling and licensing lightning chargers. But having to have a specific charger for your phone annoyed a lot of people. The lightning board. To listen to music, I've got to take like this dongle, plug it into these earphones, plug these into my iPhone. All these pieces I've got to assemble. I don't remember buying a bloody Lego set. This cable has been one of the worst parts of living in Apple's walled garden ecosystem. Why is Apple stubbornly holding on to such an old connector other than, you know, keeping a proprietary standard around to make more

money? Apple's cables soon caught the attention of regulators in Brussels, the home base for the EU. soon caught the attention of regulators in Brussels, the home base for the EU. Lawmakers there wanted Apple to adopt the same charging standards as everyone else. Two years ago, they proposed a law they called the Common Charger Directive. President, executive, vice president, today is a great day for consumers,

a great day for our environment. So there's a member of the European Parliament named Alex Aguias Saliba, and he represents voters in Malta. And he was the one who basically shepherded the bill through Parliament. So about a year ago, he spoke as part of a debate about this legislation. After more than a decade, the single charger for multiple electronic devices will finally become a reality, a reality in Europe,

and hopefully we can also inspire the rest of the world. And you can see him stand up there with a fistful of cords in one hand and a single cord in the other. And he says, like, in this hand with this fistful of cords. This is the past, and this is the present. And he says, like, in this hand with this fistful of cords. This is the past and this is the present. And here we are today. This is the present, the single cord that we're moving toward.

Apple didn't like what it was hearing out of Brussels. Apple was quite resistant and really pushed back on the idea. And they argued that it would mean that it's a regulator telling companies what they should be doing and that you lose some element of innovation by doing things that way. The European Union passed the common charger law anyway, which could solve a problem a lot of households have. I have a partner who uses a Samsung phone. So between the two of us, we have two different types of phones and two different charging needs for those phones. It's an interfaith household. Yeah, that's very true. But I want to back up a little bit here. So what exactly was the EU regulators' argument

against having all these kinds of chargers? So the argument that regulators had about that in proposing the legislation is, there are a couple of pieces to it. And one is that they just say it's costing consumers money. If you have to buy another cord for each new electronic device you get, a pile of cords, they also see that idea as inconvenient. And as you said, we all have those cords sitting around at home. Right. Yeah, exactly. They also really put a lot of focus on the point of e-waste. I mean, I do have this suitcase full of cords that, frankly,

probably doesn't have any use in my life anymore and probably should just be brought to an e-waste recycling center. Now that Apple has to comply with those EU regulations, it isn't just making a special iPhone for Europeans. It's rolling out this USB-C feature everywhere. And if Apple is bending to rules out of the EU, no tech giant is immune. Would you say this is also an example of a wider trend against big tech? Yes. This is kind of a new era for large tech companies where they are actively under regulation, similar to what the financial industry faces. It's the beginning of a really significant change. beginning of a really significant change. How Brussels is taking on tech titans like Meta and TikTok and Google after the break. Wherever you're going, you better believe American Express will be right there with you.

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Air Mile. with more ways to earn. AirMile. I've heard that you're actually pretty excited to talk about European tech policy. Is this like a passion of yours? You know, maybe it's a Stockholm syndrome. Sam Schechner is our Europe-based technology reporter. Regulation often can be pretty boring. Just the word, you know, makes people kind of glaze over. It's not boring to Sam, though.

That's because when it comes to tech rules, whatever happens in Brussels doesn't just stay in Brussels, or Europe for that matter. The new iPhone is just one example. That cable is actually just a sign of what's to come in a whole slew of other EU rules and regulations that big companies that go far beyond just Apple are going to have to bend to in the coming years. Often, the EU's laws go global. It's called the Brussels effect. It was a term coined by Anu Bradford, a scholar at Columbia Law School.

And by the Brussels effect, I refer to the European Union's unilateral ability to regulate the global marketplace. It describes the way in which rules made in Brussels tend to have a ripple effect for a variety of reasons outside of Europe. Other parts of the world have, you know, sort of taken their cues from the EU. And we're starting to see parts of that coming into the U.S. Europe has been bringing the hammer down on big tech since the 90s. And more recently, their enforcement is intensifying. In the last five years, we've seen the EU actually ramp up its efforts to pass a whole new slate of laws.

And now it's kind of like gremlins. I mean, you put one in the water and now there's like five things. They're everywhere suddenly. Keep them away from water. Don't get them wet. Name your issue and there's an EU tech law either passed or on the tracks for getting passed sometime soon. One of the first of these to hatch was the GDPR, or General Data Protection Regulation.

And it's the reason you often see so many privacy prompts when you visit a website. At a very basic level, it was meant to protect the privacy of users by limiting when and how companies can collect info about you. At first, the law was only intended to protect residents of the EU. But eventually, companies around the world implemented parts of the GDPR. It's led companies to really update their privacy policies, which used to sort of be a kind of mishmash of stuff that didn't always really reflect the reality of where the data was going. And it's made privacy protection across the internet a little bit more standardized. The Brussels effect in action. And potentially bigger changes are yet to come because of more regulation that went into effect last month.

So what new regulations from Brussels have had big tech scrambling? scrambling? Well, the first two laws in this new salvo of EU regulation are the Digital Markets Act and also the Digital Services Act. The Digital Services Act forces big online platforms to beef up their policing of digital content. For example, users will see more detail about why they're seeing ads. They can turn off certain types of algorithmic recommendations. And they'll get new opportunities to appeal content moderation decisions. The Digital Markets Act is trying to pry open a handful of super big tech companies and make them subject to more competition. So I kind of want to know what some of these changes mean in practice on a consumer level. So I was going to do a speed round of how this is going to affect some of these big tech firms.

Okay. Speed round. Great. What kind of changes is Google or Alphabet making? Well, a lot. But let's go with choice screens. Google will have to offer choice screens on Android phones for people to choose a web browser other than Chrome. And what about Apple? What changes is it making? Well, they're working on a way for you to download apps

without going through the App Store, something that the you know, the company had said would basically compromise its security. So that's Apple and Alphabet. What's Meta doing about the new rules? With Meta, Facebook and Instagram are starting to notify people and let them appeal, not just when their content is removed, but sometimes when it's just restricted or their accounts are limited in ways that maybe the user suspected,

but they'd never been able to prove before. And one of the few non-American companies targeted by these rules is TikTok. What's TikTok doing? Well, TikTok is now allowing you a way to get out of its famously addictive feed, where if you pause on a video for half a second, suddenly your feed fills up with those kinds of videos. They're now offering

to users in Europe a purely chronological feed if you want it. These rules are incredibly sweeping. How does the EU plan to enforce them? Both of these laws empower EU regulators to dig deep inside of the companies to make sure they're complying and to issue huge fines if they aren't. For example, a fine for violating the Digital Markets Act could be as high as 20% of a company's global revenue. That could amount to tens of billions of dollars. U.S. lawmakers have been trying to regulate big tech for some time now. Why does it seem like the Europeans have been much more effective than the U.S. at making big tech bend? at making big tech bend?

First, Europe is big enough to matter to these companies. And second, because the politics here in Europe are aligned for these types of policies. I mean, there's 450 million consumers. It's just too much revenue to ignore. And when it comes to the politics, I mean, there's more of a consensus in Europe on a few things that makes it easier to pass tech regulations

here than in the U.S. First of all, in Europe, it's a much more widely held view that big companies and capitalism should be regulated in the first place. Secondly, there's a difference in the way people balance some key values like free speech, privacy, and security. You know, that balance is less tilted toward free speech in Europe than it is in the U.S. But that's not to say that the EU won't have any trouble implementing these laws. You know, there will be this question of can, you know, thousands of tech workers versus maybe a hundred, a couple hundred enforcement personnel really, is that a fair fight? Will these laws really be effectively enforced? The EU is definitely going to have to pick its battles. So how would you describe

this moment for big tech? You know, I think it's a real turning point for companies that were born in the libertarian hothouse of Silicon Valley, where really the dawn of the internet was like the Wild West in good and bad ways. But we're seeing a shift towards the idea that tech should in some way be regulated. And almost more concretely, we're seeing it now with the USB-C? This is a case where, yeah, the EU is sort of saving everybody the hassle of, you know, finding out, as I did on my recent vacation, that I didn't bring enough lightning cables. I only had USB-C cables.

And, you know, we were left one iPhone out each night, had to not charge, and it was really frustrating. Yeah, it's that or buy another lightning charger, which you then take home with you, and then you have an extra cable, the whole situation. It's obviously a frustration that everybody has had. So, you know, for once we can say, thanks, bureaucrats. For once, we can say, thanks, bureaucrats. When you finally switch over to your new USB-C iPhone, what are you going to do with all of your lightning cables? Because our colleague Kim McRaehl has a whole suitcase full of discarded cables from years past.

I can braid them together into a bracelet. I actually think my kids who manage to find arts and crafts materials will surely be happy to have things to you know make into robots and houses and yeah That's all for today, Wednesday, September 13th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.